When Accountants Go Bad: Scandal-Plagued Firms Turn Out For Romney

August 29, 2012

Richard Eskow

The presence of scandal-ridden accounting firms on Mitt Romney’s fundraising list got me to thinking: What do they expect to get for their money? And why does the accounting profession seem to be so riddled with corruption? And it reminded me of something that happened years ago.

I thought I’d seen it all. As a teenager in pre-punk rock and roll bands I’d been hustled by junkies and serenaded by drag queens from coast to coast. As a political activist I’d been beaten up by goons. As the housemate of a witness to the Patty Hearst kidnapping I’d been wiretapped.

But nothing had prepared me for the world of accountants gone wrong.

Bad Accountant

I was a financial analyst in my early thirties when I was suddenly confronted with a demand from a CEO known as “the meanest boss in America.” His corporation’s accounting firm, later to be implicated in the 2008 financial crisis, had concluded that its benefit plan costs were skyrocketing.

It didn’t take long to realize that they’d made elementary and critical mistakes in both their reasoning, their investigation of the facts, and their math. The “cost problem” was non-existent and their incompetence was apparent. (My own forecast for the following was so accurate it became legendary in certain nerd circles, if I do say so myself. That was a lucky break … partially.)

But my worldliness wasn’t on par with my analysis. I asked a question that caused my colleagues to laugh at my naivete: “Is the accounting firm going to get fired?” I asked. They explained to me that the firm and the CEO had an “understanding.”

An “understanding”: It took me years to figure out what that meant.

Forget it, Jake. It’s Accounting Town.

Accounting firms are required by law to sign off on the accuracy of the financial statements issued by the firms they’ve audited. Given the widespread and frequent fraud in the financial industry, these firms are either corrupt or incompetent. (Granted, the two aren’t mutually exclusive.)

After the collapse of Peregrine Financial Group, which came after years of unreported fraud, the agency which regulates accounting firms reviewed 23 audits of brokerage firms. How many of them did it find to be deficient?

All of them.

The Public Company Accounting Oversight Board concluded that, in the words of a board member, “The auditors were not properly fulfilling their responsibilities to provide an independent check on brokers’ and dealers’ financial reporting and compliance with S.E.C. rules.”

The board found that in 13 of the 23 audits auditors didn’t even perform the necessary work.

Nobody was particularly shocked by the report.

Romney’s People

Now, thanks to the work of the Sunlight Foundation, USA Today and others, we learn that executives from scandal-plagued consulting and accounting firms have been showing up on lists of donors and bundlers for the Romney campaign. We have identified executives from the following organizations:

PriceWaterHouseCoopers: As we detailed a while back, PwC was closely implicated in the AIG scandal and Goldman Sachs/ABACUS. Since there were no prosecutions in this egregious case – check out the link for what looks like pretty clear-cut investor fraud – we’ll never know all the details of the deception.

Ernst & Young: It has already paid $2 million to settle fraud charges. Ernst & Young has also been charged with “major accounting fraud” in the Lehman Brothers scandal that was a central part the 2008 financial crisis.

Deloitte: It’s knee-deep in the recently uncovered Standard Chartered/Iranian money-laundering scandal. And it’s been sued for the whopping sum of $7.9 billion for failing to detect widespread mortgage fraud.

Other firms are represented on the bundler list too, including repeat criminal offenders like JPMorgan Chase and Goldman Sachs, along with the law firms which defend them. But nothing says “bad” quite like an accounting firm gone wrong.

The Bottom Line

Is it any surprise that the Republican Party is so steadfastly opposed to even the mild reforms contained in Dodd/Frank, or in demanding better regulation of the firms which have enabled investor and consumer fraud on such a massive scale?

It shouldn’t be.

I thought I’d seen it all. Maybe you think so too. But you haven’t seen anything until you’ve seen accountants who have gone wrong. Don’t count on; the GOP to do it, but it’s time to hold accounting firms – you should forgive the choice of words – accountable.